Obie Fernandez

RSA (Retained Services Agreement)

Over the years I've blogged extensively about Master Service Agreements (known as MSA documents) and I even sell them via this blog. MSAs are a useful tool for consultants wanting to contract individual chunks of work as separate statements of work (via SOW addendums to the MSA). Those SOWs can specify either hourly or deliverable-based pricing.

MSAs are by no means the end-all, be-all of consulting contracts. In fact, if you have the reputation and marketing saavy to get away with using it, I think you should consider instead relying on a Retained Services Agreement or RSA.

The RSA is different from its cousin the MSA in several ways:

• You only need to execute it once, there are no SOW addendums.
• It specifies a monthly retainer that is paid upfront, every month
• It can easily specify an irrevocable minimum contract length
• It can easily mandate a minimum written notice of termination

Since you're always paid up-front with an RSA, it's significantly easier to pause work on late payment, which is one of the best, if not the absolute most effective way of making sure that you always get paid for your hard work.

Charging an upfront monthly retainer is an interesting adventure if you're accustomed to billing on an hourly basis. It's also a potential sticking point in client negotiations. In essence, an RSA establishes a minimum spend per month, which is always billed no matter how much work is performed. You can optionally establish that the monthly fee is calculated as a block of hours at an hourly rate, which would allow you to bill for overtime, but many people only specify a monthly rate that is not subject to pro-rating. That takes serious courage.

Use of an RSA is not for the faint of heart. You must be confident that you will be able to deliver results that the client wants on a consistent basis. You must be very communicative about the work that you're doing. Most importantly, you must know that you will be able to allot the minimum number of hours committed to that client to them on a monthly basis without stretching yourself too thin. Otherwise, you may be faced with a client that is demanding to see time logs and explanations of where their money went.

Personally, I use an RSA for my consulting contracts nowadays instead of a MSA. As an entrepreneur and independent consultant that's really short on time, I can't afford to constantly renegotiate terms or be chasing after late payments.

Have you signed an RSA before? As a service provider or a client? What is your opinion of RSAs versus MSAs, engagement letters or one-off contracts? Please let me know in the comments.

Buy my proven RSA template bundle here for only $99

Hiring me as a consultant

While my web startup DueProps consumes most of my time, I don't make any money from it yet and probably won't for awhile. So I pick up short term consulting gigs from time to time to help replenish my savings.

What I offer is honest and experienced advice, but not deliverables. If you've followed me for awhile, then you know what my areas of expertise are:

• Growing a consulting operation from scratch
• Leadership of web development teams
• Adoption of Agile and Lean Startup techniques
• Ruby on Rails-related technology (I can pair-program with you or your team)

Hiring me as a consultant is really easy. You may purchase my time at an hourly rate or a daily rate. What you get:

1. distilled knowledge and advice
2. a no bullshit approach
3. advice on demand

I will not try to sell you anything else if you hire me and I’m not interested in ongoing retainers. I might want to give you a free demo of DueProps, but that's just cause I'm so in love with the positive impact it can have on workforces.

To book my time, we just need to have a preliminary conversation about what you want to achieve by hiring me. I don't have problems with signing an NDA, if you require it. Once we officially book our billable time together and execute a simple consulting agreement, I’ll get whatever I need from you to prepare and be available for advice on demand via phone and email.

Getting down to specifics on pricing, if you want to book me hourly, I’m $300 an hour, billed in 15 minute increments.

If you want to book me in person on a daily basis, it's $10,000 a day plus travel and accommodation expenses. Booking a full day of my time is more expensive and involved because of the disruptive nature of travel and the need for more preparation. The precise schedule of a daily engagement doesn’t matter as long as we spend about 8 hours talking or working on your project.

To book a day with me looks like this:

1. We sign a mutual NDA because while I'm on site I may share confidential stuff with you
2. You share all documents and resources that we’ll be discussing at least a week prior to the trip
3. We agree in writing on expectations for our time together, so that I can be 100% prepared

Since I live in Atlanta and you probably don't, booking me for a day will usually involve me traveling to your location. You will take care of booking the travel and accomodations and cover the cost. I only fly Delta Airlines (first class) and I only stay at Hilton Hotels.

That’s it. The terms are transparent and non-negotiable. My email is obiefernandez@gmail.com I can help you win.

--

Hat tip to one of my heroes, Mr. Tincup, for inspring me to describe this offer in this way. You should hire him for marketing advice.

Hey Web Startups, Hire Consulting Firms On The Cheap!

So you're an entrepreneur and you're doing a lean web startup using Ruby on Rails. You're teaching yourself Rails and proud of yourself for going at it alone and not spending a bundle of cash. You know that you can't afford to hire a world-class shop like Hashrocket, Thoughtbot or Pivotal Labs to work on your project, because the minimum project budgets they are interested in are in the six figures.

Incidentally, this post is strictly my personal opinion is in no way endorsed by or representative of anyone at Hashrocket, ThoughtBot or Pivotal.

Well, allow me to let you in on a little secret. You can absolutely work with those firms and maximize the benefit provided to you for as low as a couple thousand dollars. Just not in the way that you might think. And it won't be the way that they would prefer to work with you, but they'll still do it.

See the jars above? Consider the container to be the size of the available billable hours in a month. The large rocks and pebbles are current projects. It is impossible to fully utilize the space available unless you start adding smaller rocks and pebbles and eventually, grains of sand. Even the busiest consulting shops always have small amounts of utilization available. It's the slack in the system, time for people to relax, the empty volume of the jars. Despite the importance of slack, the profits of a consultancy live and die by utilization. When I was in charge of Hashrocket, which was generally busy, do you think I stressed about utilization? Yes I did. Every fucking week of the year. It's one of the reasons I got out of the consulting business. Will most consultancies take advantage of opportunities to bump up their utilization with profitable small work? Yes! The trick is how to make them do it, even if they resist at first.

Before I describe that trick, let me explain the backstory that provoked this post: Last night I got to know a couple of young entrepreneurs from NYC, Chris and Philip. They are working on an interesting little web startup named Meeteor. It's technology driven. During a conversation about testing, Philip told me that he spends a couple hours manually testing the app everytime they're ready to do a deploy. They don't do any automated testing, because they don't have the time to figure out how to do it well. My ex-ThoughtWorks friend Kurt Schrader was present and we did the requisite head shaking and tsk-tsk-ing about their failure to test their code. But the truth is, if I were in these guy's shoes I would probably do the same thing. It takes years to get really good at TDD and integration testing to the point where it doesn't slow down your progress tremendously. Sure, without tests you'll build up technical debt to the ceiling and the whole project may eventually collapse under its craptastic weight, but in the meantime the perceived slowness of figuring out how to test your stuff will demoralize and destroy your productivity. It's a no-win situation for newbies.

My advice to the Meeteor guys (and to all of you in similar situations) is the secret alluded to above: Hire help from Hashrocket (or any other competent firm) but only for a day or two at most. And I'm going to tell you exactly how to do that:

1. Call the shop up and get a decision maker on the phone. Convey that you know exactly why you're calling them and what you need.
2. Request their top Rails (and/or testing) expert for 1 day. State right off the bat that you're willing to pay their full hourly rate for those 8 hours. If you can travel to where that person is then state that you're willing to do so. Otherwise offer to pay for reasonable travel expenses to get the expert on site with you for a day.*
3. Be insistent and don't lowball them on the price. Even if they want a substantial markup on their normal rates it will still be worth it. Be prepared to have to wait a few weeks for that person to be able to take a day off from their current project. Be prepared to wire half the money up front as a deposit or even pay in full upfront.
4. Make sure the contracting goes as smoothly as possible. Do not involve your lawyer in the paperwork or negotiate on price. Do not keep anyone on the phone for a long time answering questions. Anything that makes the sale time-consuming to close (read: expensive to handle) will make the whole gig unprofitable and they will rightly tell you to get lost.
5. Once you are working with your expert, sit as a pair at the computer with them but make them drive the entire 8 hours. Do not touch the keyboard at all. Your aim will be to get the expert to tackle as many sticky problems as possible in 8 hours. Dedicate the first hour to making them set your development environment up properly, because it the way you have it right now sucks. Don't let them try to teach you VIM if you use TextMate, like don't even spend 5 seconds on that, but let them use whatever they normally use. Do not do any storycarding or get any consulting about your consulting process whatsoever. Remember that you're not there to learn directly from your expert. What you are there for is to direct the work, answer questions about the domain and keep your expert focused and productive for the duration of the 8 hours. That includes getting coffee, snacks, cigarettes, whatever. You are there to get them to do as much work on your app as possible and you will learn later on from analyzing their work.

* Right now (Mar '11) a total budget of $3k is probably very reasonable for what I'm describing.

In the case of my friends at Meeteor, they'd want their expert to implement some cross-browser selenium integration test cases. All they need is one of their most difficult ones, because once they have the scheme setup and one or two examples to draw from, they're smart enough to figure out the rest themselves.

Remember that the point of this technique is to buy as much great coding as possible in a day or two. Then you can use the results for inspiration for your own hacking. This technique works with any superstar programmer whether they are coming from a shop like Hashrocket or not. Shop refuses to work with you? Hire one of their guys for a single-day side gig! In Europe and using Mongo? Throw a couple thousand at my friend Durran to pair with you for a day. You get the idea. Just make sure that the person you hire works full-time as a programmer every day. This scheme wouldn't work with someone like me; I have plenty of depth, but slow velocity since it's not what I'm doing everyday.

The productivity boost you can get as a newbie developer from working a true expert for just a day (or two) is exponentially more valuable than what it will cost you in cash.

Since I finally got my LaunchRock Invite...

I’m happy to be officially disclosing a poorly-kept secret today. NO, I’m not gay. I’m not quitting Ruby or Rails. I don’t have brain cancer. I’m not a vegan. (Oh wait, yes I am.) Seriously though...

As of January, I have transitioned away from my leadership role at Hashrocket in order to focus on a new startup venture named RightBonus. My partner and co-founder is Nashville’s own Eliza Brock, one of the most badass and entrepreneurial programmers that I know. We are working on a platform to revolutionize the way that progressive companies do incentive bonus pay programs.

I first met Eliza at Hashrocket in the Spring of 2010, when she worked on-site in Jacksonville as a client developer. We hit it off and during off-hours she was able to help me make some serious progress on The Rails 3 Way using some killer XSLT. Her tenacity and hacker sensibility really impressed me and left me hoping to work with her on something even more significant someday. Fast forward to this week and we're in Nashville working full-time on RightBonus.

“Wait a gosh-darned minute Obie, did you just tell us that you’ve left Hashrocket? What are they going to do without you!”

Indeed, while I’m still a huge believer in the Hashrocket Way and continue to be affiliated with the company as an advisor, I’m no longer working there full-time. Perhaps like many of you, I’d been searching for the right idea to use as the foundation for a new startup venture. When the opportunity finally presented itself to exit gracefully from Hashrocket in order to chase the entrepreneurial dragon again, I just couldn’t resist. I moved out of my condo in Jacksonville Beach at the end of January and have been focusing on RightBonus ever since. (I'm officially homeless at the moment due to embracing minimalism and the exile lifestyle, but that’s a different blog post for a different day.)

I have no doubts that Hashrocket will continue to thrive. We operated successfully, doubling revenues year upon year for the past 3 years. Headcount is now 30 people and ready to grow further. My partner Marian Phelan  takes over as President with full control of the company. Marian founded Hashrocket with me and has been in operations and finance as our CFO from the outset. She’s an experienced businessperson that understands how to cultivate the discipline and stability that Hashrocket will need as it continues to mature.

So where am I at with RightBonus? That’s a good question. Seed funding is in place. Eliza and I are embracing Lean Startup principles and are currently in the early stages of Customer Discovery. Our initial version is in progress and we are working with a kickass design/front-end team to have a private alpha release ready for demoing to friends and interested parties at SXSW in early March. I also plan to start blogging about the problems with compensation status quo. The ideas I’ll be introducing are based on solutions to the pains that I personally felt as an executive at Hashrocket, so they’re grounded in reality and have roots in behavioral psychology. I strongly believe that entitlement pay is a big problem. With RightBonus we aim to introduce open-minded managers and executives to the possibilities of performance-oriented compensation programs.

I’m super excited to dive back into the world of product development from consulting. It’s a great time to be doing a startup venture, with plenty of capital available if you play your cards right. The tools and techniques available today are also so much better than the last time I made the switch, way back in 2000. Hopefully, you’re also excited for me to share the journey with you, so stay tuned here.

If RightBonus sounds like it might be interesting for your own business, go ahead and follow us on Twitter and sign up to get a beta invite as soon as we launch.

Template To Document Your Customer Discovery Hypotheses

Chapter 3 of Steve Blank's Four Steps to the Epiphany instructs you to State Your Hypotheses as Phase 1 of the Customer Discovery Process. In the process of doing that, I put together a template with the relevant outline of questions that need to be answered. Sharing the document with the hopes that it helps other lean entrepreneurs.

Download hypotheses_template.doc

Steve Blank on when not to add features

I'm studying Steve Blank's Four Steps to the Epiphany with an intensity that I haven't mustered for any book in years. I'm talking liberal use of yellow highlighter markers and scribbled notes in the margins. It's gold, I tell ya! I love Steve's advice about uncovering a market that matches your original product vision:

This rigor of no new features until you've exhausted the search of a market space - counters a natural tendency of people who talk to customers – you tend to collect a list of features that if added, will get one additional customer to buy. Soon you have a ten page feature list just to sell ten customers. The goal is to have a single paragraph feature list that can sell to thousands of customers.

The quote is from a passage talking about the second synchronization meeting between the customer development team and the product development team. Roughly speaking, in software anyway, that divide is between Sales/Marketing/Product Management and the Designers/Developers. In a 2-person startup, one founder will probably focus mostly on customer development and the other on product.

You arrive at a true Minimum Viable Product (MVP) after the product development team has already started working on the original vision and customer development team has "left the building" to validate its assumptions by talking to real prospective clients. The feedback from clients is used to trim features from the current product feature list, but NOT to add features. You don't add features until you've become convinced that you're building the completely wrong product - at that point you're probably going to scrap the idea and start over.

This valuable book came out in 2007 and I can't believe that it took me this long to study it! If you are in any way involved in startup activities and haven't bought this book yet you should absolutely get it as soon as possible: Buy the book from Amazon (or if you're not convinced yet then download the first three chapters as a PDF for free from Stanford first.)

Further reading online: Steve blogs regularly and his related thoughts on MVP are here. There's also an epic blog post about MVP that takes into account Eric Ries' thoughts on the matter here.

MSA Series: Bizconf MSA and SOW Workshop

With the publication of this video, my MSA Series comes to a close.

Part 1 | Part 2 | Part 3 | Part 4

In this presentation, co-presented with my friend Jose Gonzalez at Bizconf 2010, we describe the entire contents of a Master Services Agreement and talk about how to negotiate such documents along with their attached Statements of Work. This information is essential knowledge for owners of web design and development companies.

UPDATE: BUY THE ANNOTATED MSA+SOW DOCUMENT TEMPLATE BUNDLE!

The documents discussed in this video are now available from me for only $99. Click here to learn more.

Fiverr Madness

My Fiverr.com gig is to give aspiring web entrepreneurs feedback on their "web startup idea" and I am featured in the Business category. I get a sale about every other day, on average.

However, I find myself doing these gigs mostly for the entertainment value. Since starting, I've earned $176 in about 3 months with 65 transactions. To put that amount in perspective, it's less than I bill clients for one hour of my time at Hashrocket. In other words, if I can't finish a Fiverr job in less than a few minutes, it's literally not worth my time.

Most of the buyers are earnest and sound at least somewhat intelligent, so I have no trouble giving them positive or negative criticism. My positive feedback (meaning satisfied customers) rating is 97%, so the vast majority of them are happy with the interaction. However, every once in awhile I am subjected to a client that just makes my head want to explode.

Since I didn't get paid for the following transaction and my gig has no confidentiality terms, I've turned it into cheap blog fodder. Even accounting for language and cultural barriers and giving her the benefit of the doubt, I still think this person is hysterical... but judge for yourself: (italics mine throughout)

SALLY (THE BUYER):

Greetings Obie, 

Please be very critical of my idea and website.

Start an eBizs. Get Paid Daily! Choose from 23 eBizs & eAudios. Start working in one hour. Get paid in 24-hours! Make $10 to $50 hourly! Guaranteed!

My goal is to advertise my site on TV, cable an radio. (Start an eBizs. Get paid daily. Never worry about money again.)

[Link redacted since I don't want to send her traffic. -Obie]

My monthly advertising budget is $5000. I can get about 200 cable commercials for that rate. I guarantee all my business eBooks and eAudios. Most importantly, Obie, does my website make you want to take ACTION?

Thank you, Sally

OBIE (REPLIES):

1) What is an "eBizs" or "eAudios" 

2) I am immediately skeptical of anything that guarantees $10-50 hourly rates. Can you guarantee that rate to disabled/incompetent respondents? 

3) Your website did make me want to take ACTION: Run away as quickly as possible! :)

Overall, it feels like a scam to me. How is it not?

SALLY:

Wow! Thanks for your overview. You can download eBizs (like landscaping) and start working within one hour and get paid tomorrow. Each eBizs shows you in five simple steps how to create an income with minimal skills.

You can try two types of eBizs for free and if you're happy, you can buy one of the 23 eBizs for $9.95. We can't make someone actually work and we provide a 100% guarantee. We also have tons of testimonials you can contact.

I guess our site isn't effective? I've had tons of people love our new site. But, you're the professional.

Smiling-

After she declined my mutual cancellation proposal...

SALLY:

Howdy Obie,

I'm a prolific author and I wanted to create tools (books) that can help people start a business quickly. My books are very comprehensive and are from 200 pages to 600 pages long. I also offer business audios to help people as well.

I provide two free eBooks so people can see how comprehensive they are for free. I'm 100% into people becoming sustainable and responsible for self.

I also give away thousands of my business tools to homeless women in shelters and prisons. [WTF? -Obie]

Running a business is easy for me--and I make it easy for others.

You did your job and I don't mind paying you. I appreciate your kind feedback. Some of my books have taken me years to write, like my Tantra Coach Book is over 500 pages and I've taught Ipsalu Tantra for 15 years. So, I'm very proud of my books. Maybe my site isn't clear enough.

By the way. There are many books like mine on the market. Whats wrong with business start up books?

Smiling, Sally

OBIE (SUGGESTS MUTUAL CANCELLATION OF ORDER, AGAIN)

Wishing the best of continued success, Sally. Your submission isn't a web startup idea so I must request cancellation.

SALLY (FINAL MESSAGE)

Hi Obie,

I wanted to say thank you for your kindness and honesty. We are making changes to our site. Even though our site has sold over 50,000 Quick Business Book--your kind insight helped. I always take criticism in a positive proactive way!

I'm sorry you hated our site... we have found some great people on Fiverr that we have hired. We would had paid you up to $2000 to help us correct our vision. But, since you hated us--we will find someone else.

Keep making the world a better place! Sally

Is there something I'm missing here?

Liveblogging: Lean Startup Machine Chicago

9:51pm Sunday

Well, we didn't win the grand prize, but I'm very proud of our team. We worked really hard and got a ton of useful advice and encouragement from the organizers, judges and mentors. Big thanks to Eric Ries and major props to Bernhard, Brandon, Eduardo, Trevor, Kyle, and Ben for putting on such a kickass learning event.

4:13pm Sunday

Whew! Presentation is over. I think we got our story across correctly. Now we sit tight and watch the rest of the competitors.

Companion Links for KickEatery.com Presentation

First MVP is our landing page, which is unchanged at KickEatery.com. After this morning's major pivot we linked that landing page to a followup form to help us gauge adoption at our initial commitment levels of $10 to $100.

Thanks to good participation from twitter followers and a small investment in Facebook ads, were were able to drive a healthy amount of traffic and conversions to our landing page. We even did some A/B testing around our tagline. Here is a screenshot of our Unbounce dashboard showing conversion stats of approximately 3%.

Throughout the weekend, we also created a Startup Canvas to help us achieve a shared understanding of our business concept.

3:27pm Sunday

Finally the presentations and judging kicks off. First up is RoutineMachine, which is a tool to help people be accountable over the course of a 30 day period. The presenter just told us he got the best reaction/responses to man on the street surveying by telling them they were part of an "Apprentice-style reality tv show. Seriously..." The room got a good chuckle out of that.

2:52pm Sunday

The heat is on. Second MVP prototype is deployed. We're waiting for the final "pencils down" from the organizers as Rob puts finishing touches on our slide deck, which now includes a breakdown of our hypotheses and assumptions, "pivot table" showing how our business model evolved over time, screenshots of our MVPs and a revenue model.

Excited about our potential, but I've zoned out of what the other teams are doing so I have no idea if we'll be in the running for the final $1000 prize.

12:08pm Sunday

Thank goodness that we "fell back" to DST last night. That extra hour of sleep was very needed.

The team is now over an hour into a heavy discussion about pivoting. We've split into a few different work streams to handle the presentation, number crunching and next version of our MVP. If we validate and adopt this pivot then KickEatery will have an actual product and profitable business model. Things are getting very interesting at this point.

9:00pm Saturday

Launched! Checkout kickeatery.com (In case you didn't figure it out yet, our name is inspired by kickstarter.com)

Looking back, I'm pretty impressed that we did some fairly extensive customer research and achieved our MVP in less than 12 hours. Total cash outlay: approximately $60 for Facebook advertising and registration of the kickeatery.com domain with Namecheap.

Wait, MVP? Really? Well, I guess the point is that for now the minimum viable product is a website to validate the concept and make sure that the investment that we would put into creating a feature-filled application would be worth it. These lean startup guys are definitely on to something.

Since the team has now dwindled down to just three members, we're looking at how to wrap up the day. We're gradually filling up our Startup Canvas as well as brainstorming how we can prove the concept prior to an actual website implementation. I'm thinking that a successful fundraising effort would probably garner news coverage and serve as good PR fodder for publicity and showcasing on the kickeatery homepage in the future. My Jacksonville Beach peeps can look forward to a "Bring Indian Food to the Beach" campaign in the near future. :)

7:41pm Saturday

After a quick break for dinner and socializing, the landing page is almost done. It was easy thanks to Unbounce. We're still tweaking a more detailed survey that we plan to send to the folks that gave us follow up information on the previous survey, but that should be done soon. We're also working on a Startup Canvas to draw out information that we'll need for our presentation tomorrow.

5:19pm Saturday

Relocated to Hashrocket Chicago for a change of pace and better chance of getting Rob's laptop online. (I also wanted to pick up some yummy raw food at French Market before they closed.)

Now we're talking about followup to the survey results, which indicate enough interest in the core hypothesis.

A quick look at the list of deliverables for tomorrow indicates that we need to boil the information we've collected so far:

• Make a clear statement of business assumptions (i.e. problem, business model, etc.).
• Validate or refute assumptions based upon user or customer feedback.
• Create a clear MVP (or MVP spec) that sheds light on assumptions via real data.

We're thinking our MVP (Minimum Viable Product) might simply consist of an ad campaign and a landing page to collect information about our champions.

3:30pm Saturday

After a tough iteration, we finally agreed on a survey for restaurant owners. We needed to validate the questions in some way, so I called up my friend Guy, who owns a local Thai restaurant in Jacksonville. We got some interesting insights from the conversation, especially around the importance of competitors within a 5 mile radius.

Now we're trying to figure out if the data collected means we need to "pivot" from our original concept.

1:35pm Saturday, Nov 6

Bernhard Kappe is mentoring our team and telling us to not put the cart before the horse. We need to determine that people have the problem we've identified before we propose the solution that we're discussing. Where is the pain?

The group believes the pain is there for the consumer. For the restauranteur, we don't know and we need to find out.

1:11pm Saturday, Nov 6

I'm currently participating in Lean Startup Machine, a weekend-long startup competition that conforms to Lean Startup principles, a method of using customer feedback to rapidly iterate your product to reach product/market fit.

Eric Ries kicked off Friday evening's event followed by networking and pitches. Kevin Taylor of Obtiva advised us to leave Agile practices for when fea Brant Cooper and Patrick Vlaskovits, authors of The Entrepreneur's Guide to Customer Development also gave brief presentations and are functioning as team mentors for the duration. Participants selected ideas and formed teams to work on their project over the weekend. On Sunday, teams will pitch their business and Minimum Viable Product to a panel of well-known entrepreneurs for cash and mentoring.

I pitched my idea and enough people liked it that I am now leading a startup team. The root of the concept is the lack of cuisine diversity within particular neighborhoods and suburbs. My gut (haha) says that there is pent-up demand that would make itself manifest if given the right vehicle. The backstory is that for at least a few years I've been ranting about the pathetic fact that there is no Indian food near Jacksonville Beach. We have to drive at least 20-30 minutes to the Baymeadows area of South Jacksonville, where there are at least half-a-dozen Indian restaurants.

Our hypothesis is currently split in two parts:

 

1. Customers with pent-up demand will pledge seed money to attract a particular type of restaurant to their neighborhood.
2. Restaurant entrepreneurs will be inspired by a successful campaign to open a restaurant that fulfills customer demand.

 

It's been a lot of fun so far. My teammates and I are currently trying to validate the first hypothesis and the assumptions behind it using a quick 4-question survey.

Competitive Research Series: Part I

Early this year, I commissioned a competitive research project with the goal of producing real insight into how other web design and development shops out there do business. The results were interesting, to say the least, but due to time constraints I haven't been able to do much with them. I'll be sharing highlights of the data with you over the coming months, starting with this introductory blog post.

First, an explanation of how the data was gathered. First we helped our researcher, a potential entrepreneur with a good idea, to flesh out his web startup concept (involving social media and e-commerce). We crafted the scope of the project to correspond to the type of complex web application work that Hashrocket has designed and built on budgets ranging from 100 to 500 thousand dollars. The project details were crafted well, probably beyond what was necessary in order to do the study.

Over the course of a month, our entrepreneur painstakingly contacted a total of 103 web design and development companies, primarily via email. 54 of those companies followed up to some degree or another, ultimately leading to in-depth conversations with 42 of them. That leads to one of the first eye-opening revelations of this study: Almost half of the companies we contacted didn't follow up properly or at all. In fact, about 6% of our initial contact emails bounced! Has that much of the industry gone out of business this year? Or is email that unreliable a contact method?

It is difficult to discern whether the firms that ignored initial contact did so because they were careless or simply too busy. Perhaps the work didn't interest them? One well-known firm had an auto-reply message to the effect that they were too busy to respond to anything other than urgent requests, adding that their lead time for starting new projects was at least 3 weeks or more. Ballsy.

I will not be identifying any of the companies researched, although I will say that many well-known shops were on the list, including one behemoth that ended up being excluded from much of the results by merit of being such an outlier (ahem). The list of companies to contact was first drafted by naming the shops we know off the top of our heads, then enhanced with shops found via Google searches and a variety of online resources including:

    ⁃    FirmList.com

    ⁃    RailsDevelopment.com

    ⁃    Sortfolio.com

Our entrepreneur purposely tried to contact providers with a variety of technology specializations (not just Rails shops) and did not express a preference for a particular technology, instead asking the shop to give their preference. As you can see in the graph below, we were able to include a healthy number of PHP and .NET shops.

Somewhat surprisingly, but perhaps due to our small sample size, none of the shops expressed a preference for Python. We also were not able to talk to that many Java shops. Perhaps Java really is losing steam as a mainstream web technology?

The size of the companies studied varied quite a bit. In a future entry in the series I plan to analyze a bit more carefully the smaller end of the spectrum, but for now I'll simply give you a graph showing the distribution by headcount.

We also got data on the years in business of the companies contacted and what kinds of people they employ.

 

By itself, the years in business distribution seems somewhat even and perhaps doesn't say much, but I hope to break down some of the other data in relation to maturity of an organization and hopefully yield some interesting results.

On the other hand, the employee type breakdown did surprise me. The vast majority of the firms we spoke with claimed to employ only full-time employees (FTE) rather than a mix of FTEs and contractors. Even less used only contractors, with a significant fraction of the mix being shops with a main market presence and offshore development resources. 

 

When we asked companies about the average years of experience of their developers, most said "it varies," which we took to mean that junior developers would be involved. Fifteen percent gave us a number between 1 and 3 years, which doesn't inspire much confidence! 

 

Over half of the companies we spoke with were willing to share annual revenue figures, with the rest declining to answer for confidentiality reasons or simply not knowing.

 

We're guessing that many of the numbers we were cited were make-believe, because the variety of revenue figures was very surprising, especially when analyzed in conjunction with head count to derive per person revenue numbers. Could the spread in profit margins really be that wide?

 

 

The next entry in the series will delve into hourly rate data, which I'm sure you don't want to miss.